Bust Companies Revived in 'Phoenix' Deals More Likely to Fail Again, Study Finds

Insolvent businesses reacquired by their previous management through "pre-pack" administration deals are far more likely to collapse a second time and repay substantially less to the creditors they leave behind, according to new research conducted for the Guardian. The findings land fresh evidence on one of insolvency law's most contested and long-running controversies.

Pre-pack administration is a process in which the sale of a stricken company's assets is negotiated and agreed before an insolvency practitioner is formally appointed, with the transaction completing almost immediately once the appointment is made. When the buyer is a connected party — typically the company's own directors — critics argue the process can shield failing management from accountability while ordinary creditors bear the losses.

The research found that 44% of pre-pack deals in which assets were acquired by a connected party had resulted in a second insolvency by July 2026, a failure rate that underscores the structural questions the practice raises. Creditor returns in such deals were also found to be markedly lower than in comparable insolvencies where assets were sold to unconnected third parties.

The study adds weight to a body of academic and policy literature challenging the efficacy of connected pre-packs. A paper published through academic channels earlier identified pre-packaged administrations involving phoenix operations as posing particular risks to unsecured creditors, who frequently receive pennies on the pound — or nothing at all — when a director buys back the business they steered into failure.

Phoenixism, as the broader practice is known, involves directors winding up a company burdened by debt and then continuing to trade through a new legal entity, retaining customers, contracts and brand identity while shedding liabilities owed to suppliers, employees and tax authorities. HM Revenue and Customs has estimated that phoenixism accounted for around 22% of total tax losses in the 2022–23 financial year, a figure that has driven the issue up the political agenda.

The government has responded in 2026 with the launch of a dedicated Abusive Phoenixism Taskforce within the Insolvency Service. Ministers have announced funding for 50 additional investigators attached to the unit, whose remit is to identify and disqualify rogue directors more swiftly. Alongside the taskforce, the government has indicated it will amend the Company Directors Disqualification Act to widen the circumstances under which directors engaged in abusive practices can be barred from holding office.

HMRC has also escalated its own enforcement posture, with the tax authority now routinely demanding upfront security deposits for VAT and PAYE obligations from businesses it identifies as carrying phoenix risk — a measure intended to reduce the public cost before, rather than after, a collapse occurs.

The insolvency profession and some business rescue advocates argue that pre-pack administration, when used appropriately, is a legitimate and valuable tool. They contend it can preserve jobs and going-concern value that would otherwise be destroyed in a drawn-out formal liquidation, and note that not all pre-packs involve connected buyers or problematic conduct. The debate, they suggest, should focus on the subset of connected-party transactions rather than the mechanism as a whole.

Critics counter that the information asymmetry inherent in pre-packs — creditors are told of the sale only after it is done — makes meaningful challenge nearly impossible, and that independent oversight has historically been insufficient to catch abuse. The Pre-pack Pool, a voluntary body established in 2015 to provide independent scrutiny of connected-party transactions, has faced persistent questions about the effectiveness of its oversight.

The Guardian's research arrives at a moment of heightened legislative attention to director misconduct and creditor protection in the UK. Parliamentary questions tabled in early 2026 probed the government's appetite for further reform, and the insolvency reform agenda is now seen as connected to wider efforts to restore confidence in the integrity of British business rescue mechanisms.

What comes next will depend in part on how aggressively the new Abusive Phoenixism Taskforce uses its expanded mandate, and whether the promised amendments to disqualification law are passed and enforced with sufficient speed to deter directors already contemplating a second cycle. For creditors watching companies they are owed money by enter administration, the research suggests the identity of the buyer remains the single most important indicator of what they are likely to recover.